Working with Ability-to-Repay (ATR/QM) and HOEPA …

1 Working with Ability-to-Repay (ATR/QM) and HOEPA RegulationsFor use with Encompass Broker & Banker Editions Version and LaterLast Revised: 4/21/2022 Copyright Statement 2022 ICE Mortgage Technology. All rights reserved. Encompass and the ICE Mortgage Technology logos are trademarks or registered trademarks of ICE Mortgage Technology or its subsidiaries. Other company and product names may be trademarks of their respective owners. Working with Ability-to-Repay (ATR/QM) and HOEPA Regulations - Encompass Broker and Banker Editions (version and later)Rev. 4/21/2022 iTable of ContentsChapter 1: Introduction - Working with Ability-to-Repay (ATR/QM) and HOEPA 12021 Updates.

2 1 Using Encompass to Document Compliance with HOEPA and Ability-to-Repay .. 2 Terms to Remember .. 3 Chapter 2: Setup 6 Small Creditor Settings .. 6 ATR/QM Compliance Alerts .. 7 Application Date Requirements .. 8 Chapter 3: Using Encompass to Document Compliance with HOEPA and 102015 Itemization Form .. 10 Underwriter Summary ..11 Section 32 HOEPA and Section 35 HPML .. 12 Rural/Underserved Area Indicator .. 13 ATR/QM Management Tool .. 14 Verification and Documentation Tracking Tool .. 15 AUS Tracking Tool .. 15 Encompass Compliance Service (ECS) .. 15 Understanding ECS Review Results .. 16 Chapter 4: ATR/QM Management 23 ATR/QM Management Tool.

3 23 Access to ATR/QM Management Tool .. 23 Basic Info Tab .. 23 Qualification Tab .. 24 ATR/QM Eligibility Tab .. 29 Non-Standard to Standard Refi Tab .. 38 Appendix Q .. 39 Ability-to-Repay Printed Output Forms .. 41 Access to ATR/QM Management Output Forms .. 41 Chapter 5: Support for VA QM 43VA QM Requirements .. 43 Safe Harbor QM IRRRLs .. 43 Rebuttable Presumption QM IRRRLs .. 43 Encompass Support for VA QMs .. 43VA loan Summary Form .. 43 ATR/QM Management Tool .. 44VA Management Tool .. 45 Chapter 6: Section 32 HOEPA and Section 35 HPML Input 46 Section 32 HOEPA .. 46 APOR Test Section .. 46 Points and Fees Test Section .. 47 Prepayment Penalty Threshold Test Section.

4 48 Section 32 Qualification Section .. 48 Sections 800, 1100, 1200, and 1300 .. 48 Section 35 HPML .. 48 Chapter 7: Working with Points and 502015 Itemization Form .. 50700 Section .. 50800 Section .. 50900 Section .. 531000 Section .. 531100 Section .. 531200 Section .. 541300 Section .. 541400 Section .. 54 When are Fees Included or Not Included in the Section 32 Points and Fees calculation ? .. 54 Bona Fide Discount Point Assessment .. 56 Bona Fide Discount Point Assessment Tests .. 57 Bona Fide Discount Point Assessment Examples .. 58 iiThings to remember: .. 59 Additional Factors Impacting ATR Eligibility .. 59 Borrower Income .. 60 Real Estate-Related Fees.

5 60 Mortgage Broker/ loan Originator Compensation .. 60 Credit Insurance Premiums .. 61 Maximum Prepayment Penalty .. 61 Prepayment Penalty Paid in a Refinance .. 61 Charges Paid by Third Parties .. 61 Creditor-Paid Charges .. 61 Seller Points and Seller-Paid Charges .. 61 Charges Paid to Affiliates .. 61 Chapter 8: Responding to ATR/QM Compliance 62 Alert Triggers and Response Methods .. 62 Chapter 9: Verification and Documentation Tracking Tool 66 Create and Edit Tracking Entries .. 66 Chapter 10: AUS Tracking 69 AUS Tracking Tool .. 69 Grant User Access to AUS Tracking Tool .. 70 Appendix A: ATR/QM 71 Appendix B: Bona Fide Discount Point Assessment Quick Entry Field 73 Appendix C: FAQ and 76 Frequently Asked Questions about Ability-to-Repay (ATR) / Qualified Mortgage (QM).

6 76 Additional Resources .. 79 Chapter 1: Introduction - Working with Ability-to-Repay (ATR/QM) and HOEPA Regulations 1 Chapter 1 Introduction - Working with Ability-to-Repay (ATR/QM) and HOEPA RegulationsStarting January 10, 2014, lenders were required to document compliance with the Bureau of Consumer Financial Protection s (CFPB) amendment to Regulation Z that implements sections 1411, 1412, and 1414 of the Dodd-Frank Act (Dodd-Frank Wall Street Reform and Consumer Protection Act) and prohibits creditors from making most residential mortgage loans against a closed-end first or junior lien secured by a 1-4 unit dwelling unless the creditor makes a reasonable, good faith determination of the consumer s Ability-to-Repay the loan .

7 In addition, the final rule establishes certain protections for creditors who make a Qualified Mortgage . Creditors must assess the consumer s Ability-to-Repay for virtually all closed-end residential mortgage loans and it is now presumed that all Qualified Mortgages (QM) comply with these CFPB requirements. A loan that meets the following product feature requirements can be a QM under any of the three main categories: (1) the General QM definition(2) the Agency/GSE*-eligible QM provision(3) the small creditor QM provision2021 UpdatesEffective March 1, 2021, under the Final Rule issued by the CFPB, the general QM loan definition has been amended under Reg Z.

8 The mandatory compliance date for this new definition is October 1, 2022. Lenders have the option to begin using the new definition between the effective date of the new rule and the mandate, but can leverage the prior QM definition during this time. General QM Final Rule amends the General QM definition as follows: Replaces the existing 43% DTI limit with a price-based limit. Removes Appendix Q as well as any requirements to use Appendix Q for General QM loans Retains the ATR/QM Rule's consider and verify requirements and clarifies how they apply under the revised General QM definition Retains the existing product-feature and underwriting requirements and limits on points and Eligible Provision Sunset*In Lender Letter 2021-09, Fannie Mae announced:The PSPA requires that we acquire loans that meet the revised General Qualified Mortgage (QM) loan definition in the CFPB's rule1 that became effective Mar.

9 1, 2021 (Revised QM Rule). As a result, and in accordance with the dates below, we will no longer acquire loans that are GSE Patch loans that do not meet the Revised QM Rule. To be eligible for purchase, such loans must have application dates on or before Jun. 30, 2021, and be purchased as whole loans on or before Aug. 31, 2021, or in MBS pools with an issue date on or before Aug. 1, product feature requirements for all QMs: Points and fees do not exceed 3% of the Regulation Z-defined Total loan Amount (for lower loan amounts, higher percentage thresholds are allowed). No risky features like negative amortization, interest-only, or balloon loans. Balloon loans originated until January 10, 2016 that meet the other product features are Qualified Mortgages if originated and held in portfolio by small creditors.

10 Maximum loan term is less than or equal to 30 1: Introduction - Working with Ability-to-Repay (ATR/QM) and HOEPA Regulations 2 Three main categories: General definition category of QMs Option 1: Current definition, including 43% DTI cap and other product feature requirements. Can be used for loans with an application date on or before 9/30/2022 Option 2: Revised definition including price-based test, no DTI cap. Other feature requirements remain the same with Option 1. Can be used for loans with an application date on or after 3/1/2021, but must be used for loans with an application date on or after 10/1/2022. Agency/GSE-eligible category of QMs (Sunset 6/30/3021) - Any loan that meets the product feature requirements and is eligible for purchase, guarantee, or insurance by a GSE, FHA, VA, or USDA is a Qualified Mortgage regardless of the debt to income ratio.